Here's What Happens to Your Credit Cards if You Declare Bankruptcy

For consumers who are deep in debt, bankruptcy is sometimes the only option. If there's no realistic way to keep up with your payments, declaring bankruptcy gives you the opportunity to discharge your debt and rebuild your finances.

People often wonder what will happen to their credit cards after filing bankruptcy, and if it's possible to keep at least some of them. Here's what you need to know about how bankruptcy affects your credit cards.

Your credit cards will be closed

When you file bankruptcy, you're legally required to list all your debt on your bankruptcy petition. This includes all your credit cards, whether or not they have a balance on them. Even if a card has a $0 balance, you still need to include it, because it's a credit account.

The bankruptcy court then sends a notice to all the creditors listed in your petition. Once your credit card issuers receive notice of your bankruptcy, they will close your credit cards. After all, your bankruptcy prevents them from being able to enforce and collect on debt.

You can't exclude any of your credit cards from this process. Keep in mind that even if you omitted a card, the card issuer would still almost certainly find out about your bankruptcy. It's a public record and gets reported by the credit bureaus. One way or another, your credit card issuer would get notified of your bankruptcy and cancel your card.

You might have trouble getting approved by those card issuers in the future

After bankruptcy, you can get a credit card once your debt is discharged. Since your credit score plummets during bankruptcy, your best bet will be credit cards for rebuilding credit. These have more lenient approval requirements than most credit cards.

However, it could be difficult to get approved by any of your previous card issuers. Many card issuers will blacklist you if you discharged debt with them during a bankruptcy. When a card issuer loses money on your credit card account, it's going to be reluctant to approve you for another one.

This varies depending on the card issuer. Some are strict, and others are known for being more "bankruptcy-friendly." Based on online reports, here are a few of the bankruptcy-friendly credit card companies that are more likely to approve you, especially if you didn't discharge any debt with them:

• Capital One
• Discover
• Credit One (but it charges costly fees)

There are also several card issuers that normally don't approve applicants with any recent bankruptcy history. And if you discharged debt with them, you could be on their blacklist. Here are a few of the card issuers with a reputation for being stricter about bankruptcy:

• American Express
• Chase
• Citi

How long bankruptcy affects your credit

If you filed Chapter 7 bankruptcy, which allows you to discharge all your debt, it stays on your credit file for 10 years. If you filed Chapter 13 bankruptcy, which allows you to reorganize debt and set up a payment plan, it stays on your credit file for seven years.

That doesn't mean you're going to have a low credit score or find it impossible to get a credit card for that long. You can get a credit card once your debt is discharged, and in fact, you may start getting offers in the mail fairly quickly. Many card issuers market heavily to consumers who have recently completed the bankruptcy process.

Not all of these are quality credit cards, so you'll want to make sure to review the fees and terms. Still, you'll have options. And if you follow good credit-building habits, including always paying your bill on time, your credit score will gradually recover. Even though bankruptcy stays on your credit file for seven to 10 years, its impact gets smaller and smaller as time goes on.